As consumer confidence grows, research reveals UK credit card holders are set to rack up a bill of £86 billion
- Retail spend: With total retail spend predicted to rise by 3.4% to £331 billion this year, credit card spending is set to account for more than a quarter of this (26%), the highest proportion since 2008
- Retail spend on credit cards: Total spend on credit cards is expected to rise from £80 billion in 2013 to £86 billion this year representing an 8% increase. At the height of the recession (2008-2010) this figure fell by -7%
- Individual spend: Consumers will carry out a total of 2.5 billion retail transactions on credit cards this year, an increase of 2% on the previous year with each credit card holder expected to spend an average of £2,892 each
- Type of spend: Almost a third (£25.7 billion or 30%) of total credit card spending will be on groceries and other food including alcohol – this totals £867.60 for every credit card holder
- Holidays on credit: In addition to this spend, travellers are likely to splash out almost £9 billion on their credit cards booking overseas holidays this year, an increase of £641 million from £8.3 billion in 2013
Following recent reports of increased retail spend throughout December, a new study released today by credit card comparison website TotallyMoney.com, in partnership with the Centre for Retail Research, reveals that this trend is set to continue throughout the next 12 months. UK consumers are expected to spend over £86 billion on credit cards in 2014 carrying out 54 million additional retail transactions. This is an 8% increase on 2013 retail spend on credit cards which hit £80 billion. The report also predicts that total retail spend is set to rise by 3.4% in the next 12 months totalling £331 billion. Credit card spend is expected to account for over a quarter of this (26%), the highest proportion since 2008.
The research estimates that consumers are going to carry out a total of 2.5 billion credit card transactions this year, a 2% increase on 2013 which totalled 2.45 billion. The average spend per transaction is also expected to see a slight increase, rising from £32.50 to £34.20. Overall, individual spend is forecast to reach £2,892 in 2014, 8% higher than last year.
Retail spending on credit cards showed the most significant drop at the height of the recession (from 2008 – 2010) when it fell by -7% from £77 billion to £72 billion. In contrast, consumers reached for their plastic once more in 2013 as spend hit £4.5 billion more on credit than the previous year with an average individual spend of £2,482.
Consumer confidence on the up
Much of the predicted growth in credit card spend can be attributed to a drastic increase in consumer confidence from April to September last year, a measure which has marginally declined in recent months but is still considerably higher than at the start of 2013. In addition to this, consumers are reassured by recent media reports of key economic measures showing green shoots of recovery. This includes factors such as the recent fall in inflation to 2% which eases the pressure on the Bank of England to increase rates, unemployment falling to 2009 levels of 7.4%, GDP growth of 0.8% and property prices predicted to rise by 8%.
Table one – total retail spend split by payment methods from 2007 – 2014
|Total retail spend||£271,298.9||£279,777.0||£292,348.0||£302,872.5||£310,765.9||£320,088.9||£330,971.9|
Note: all spend is in billions and represents retailing of goods only. Sourced from the Centre for Retail Research, January 2014
However, this increased confidence is slightly distorted with almost a third (30%) of total credit card spend carried out on everyday essentials such as groceries and other food alongside alcohol racking up a total bill of £25.7 billion which could indicate consumers are finding it hard to make ends meet. This isn’t an issue for 59% of credit card holders who pay their bill in full every month as many of these could be enjoying reward and cashback credit cards. However, for more than one in ten (11%) who make the minimum repayment each month, this could be problematic and end up costing a lot in interest payment in the long run if they are not using a 0% purchase deal. Spending on non-essential items such as summer holidays and big ticket goods such as furniture will also see a boost this year.
Holidays on credit
The research also reveals that more consumers will ignore austerity and splash out on overseas holidays in 2014 using their credit card to pay the bill. In addition to retail spend on credit cards, travellers will rack up a bill of almost £9 billion this year booking trips overseas and spending when they get there. This is £641 million (8%)more than in 2013 when holidays booked using credit cards and spend whilst overseas totalled £8.3 billion. Again, for 11% of these holiday makers who make the minimum repayment each month, they could still be paying for a £1,000 holiday in 2039 unless they transfer their balance regularly to the next 0% deal.
Alternative payment methods
However, it is clear that old habits die hard as spending on debit cards has almost doubled (45%) from 2007 to 2014, compared to just 11% on credit. Despite a greater rise in credit card spending for 2014, we are still expected to spend 30% less on credit than debit, so although there was a definite shift in consumer spending habits over the past 12 months consumers still remain wedded to their debit cards. Meanwhile, as spending on debit and credit cards continues to rise, consumers are leaving the house with less cash in their wallets as retail figures project a 1% decline since 2013 and nearly a 5% decline in the use of cheques.
Will Becker, CEO and co-founder of TotallyMoney.com comments: “Although consumer confidence isn’t increasing at the same rate experienced during the summer months last year, it seems people feel assured enough that they will be able to repay the money they borrow on credit cards. Consumers are also seeing inflation and unemployment levels falling, the housing market flourish under the help to buy scheme, property prices rising and a general upturn in the country’s key growth indicators. All of these things make people feel better about spending.
“However, with overall retail spending expected to increase by 3.4% this year, a rise which by far outstrips wage inflation at just 0.8%, it’s inevitable we will see more people reach for their credit card to pay for this additional spend. My concern is that overall retail growth is being fuelled in part by consumer credit rather than productivity and wage increases and we could see personal debt levels increase towards the 2007 peak. Credit card transactions however still account for just 26% of all retail spend as 37% of consumers prefer to use debit cards and most surprisingly, 31% opt for cash.”
To research the best credit card deals available, visit Totallymoney.com. The website enables consumers to see exactly how much money they will earn or save by switching to the best deals based on annual spend, borrowing and repayments. It also identifies which of these deals consumers are actually eligible for currently a major inefficiency with rejection rates hitting 70%.
TotallyMoney.com, launched in 2007, is the UK’s leading credit-focussed comparison website which sets out to make it simpler for consumers to compare credit cards, loans and mortgages. With a revolutionary approach to credit comparison, TotallyMoney.com uses exceptional comparison tools to empower people to make better financial choices.
Notes to Editors:
1. Retail spend includes the sale of tangible goods to consumers. This doesn’t include services, catering, restaurants, holidays or travel. It also excludes sales of repairs of cars. The only exception to this is fuel purchases.
2. All research and analysis is based on market analysis carried out by Professor Joshua Bamfield from the Centre for Retail Research (CRR). The results are derived from published national and international retail and economic data, BRC, Euromonitor and Mintel, previous studies by CRR, and a survey of 50 large retailers across Europe. All figures are quoted in value terms wherever possible at current prices with no seasonal adjustments.
3. GfK consumer confidence index – 20/12/2013
4. UK Plastics cards 2013
5. ONS: Overseas travel and tourism – Jan 2014, unemployment figures, ONS Average Weekly Earnings October 2013.
6. Property prices set to rise by 8%.